UPDATE: USPS Board Allows New Rates Under Protest

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The Board of Governors of the U.S. Postal Service this week allowed under protest the overall 4.6 percent postage increase recommended by the Postal Rate Commission.


While the board backed the 1-cent increase for the price of a First-Class stamp, it said other new rates won't raise enough revenue to cover rising costs.


The board is sending the case back to the PRC for reconsideration of the decreases in the revenue request, which were submitted by the commission in November. Specifically, the PRC cut the agency's contingency request of $1.7 billion to $1 billion and reduced proposed increases in several mail classes.


Regardless, the USPS said the rates recommended by the PRC will take effect Jan. 7.


This is not an unusual step for the governors to take. A similar approach was done in the 1980 and 1990 rate cases and on a more limited basis in the 1994 and 1997 rate cases.


"The recommended rates will not provide the revenue requested in January to fund postal service operations and necessary improvements in its infrastructure and the financial position of the postal service has worsened since the rate filing," board chairman Einar Dyhrkopp said in a statement.


John Potter, USPS chief operating officer, reiterated this point yesterday at the Graphic Communications Association's 2000 Rate Case Conference in Chicago.


"The major difference of opinion between the postal service's position on rates and what the rate commission gave back is a matter of money," he said. "If you look at what was rendered, our experts believed that we are going to come up about $1 billion short in terms of revenue. The rate commission, however, had a much more positive outlook in terms of growth than the postal service does."


Potter said that in fiscal year 2000, the USPS lost $199 million and for 2001 the USPS' projection -- before receiving the PRC's decision -- was that "we are going to lose $480 million. Now with their decision, that projection is likely to be $1.2 billion."


Potter said the USPS is in dire financial straits because of several factors, including an arbitration decision involving the National Association of Letter Carriers, which cost the USPS $250 million a year; rising fuel costs, which are costing the USPS more than $300 million this year; increased healthcare costs; and a slowdown in First-Class mail volume.


"We need to break even, and that's our mandate by law," he said. "We don't feel that the decision that was made by the rate commission will allow us to do that."


Several scenarios can happen now that the PRC has the case. The PRC could send a new recommendation back to the board after incorporating some changes. It also could send the case back to the board with no changes, and the board could implement new rates over and above the increases recommended. Under postal law, this can happen only if there was a unanimous vote by the governors. Last, if the PRC rejects the USPS' reconsideration plea and the board does not unanimously agree to new rates, the filing for the next rate case could take place sooner than expected, perhaps in 2001. There is no timetable for the PRC to reconsider its decision.


While the PRC has said it would consider the USPS' request, PRC chairman Ed Gleiman made it clear at the GCA conference that changes aren't needed unless the USPS can demonstrate how its financial picture has changed significantly over the last several weeks.


"What was unusual about the request this time was that roughly $1.7 billion of it was for contingency," Gleiman said. "My colleagues and I reduced the revenue request by $700 million, leaving a billion dollars for contingency. They should be quite happy with this."


Gleiman also said that while the USPS claimed it needed a contingency fund for items like unexpected fuel increases and healthcare cost increases, these factors were already covered in other parts of the revenue request.


GCA conference attendee Charley Howard, vice president of postal affairs and special projects at Harte-Hanks, said he "doubts that anything will change here unless the postal service can better explain its need for the extra contingency funds."


The average increases for each class of mail are: 1.8 percent for First Class; 9.9 percent for periodicals; 4.5 percent for regular standard enhanced carrier route; 8.8 percent for all other regular Standard-A mail; 2.7 percent for parcel post; 17.6 percent for bound printed matter; 16 percent for Priority Mail; 7.2 percent for nonprofit periodicals; and 4.8 percent for nonprofit standard.


In a separate action, the board rejected four classification changes recommended by the PRC. One concerns the establishment of a flat-rate envelope for Priority Mail at the 1-pound weight increment. Two involve proposed new classifications within First-Class mail -- one for mail sent with electronic postage and the other for courtesy envelope mail. The fourth item regards a 3.3-ounce limit for certain Standard-A automation letter rates.
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